Director’s Letter February 2014

As is always the case, opinions ran the gamut on whether the market could continue the strong run it had in 2013, with the preponderance of opinion seeming to side with the thought that markets were due for a breather. Particularly in the case of small caps, which comprise the overwhelming majority of our coverage universe, there was a decent likelihood that shareholders sitting on sizable gains may have been waiting for January to lock in gains. By doing so the resulting tax impact is deferred a year, which, given the big year that was 2013, may be consequential for many.

Beyond that issue, concerns over emerging markets coupled with the FED looking to stay with the course with its tapering of QE have also acted to depress equity markets. Even so, we remain of the opinion that the US economy will continue to expand, with the most recent Chicago PMI lending credence to this thought.

For January, the S&P 500 was down 3.4%, the Russell 2000 was down 2.7% and the aggregate Singular List was down 7.0%. For trailing twelve months, the S&P was up 19.0%, the Russell 2000 was up 25.4%, and the Singular Research List was up 17.3%.

We initiated coverage on with two companies during January, Orion Energy Systems (OESX) and Flexsteel Industries (FLXS). We launched on OESX with a BUY and a $10 target price; FLXS with a BUY and $42.50 target.

Our top five performers in January include companies from a variety of industries. The top performer in January was Seabridge Gold, up 11.0%. With the company having no news during the month, the share price improvement was likely due to a rise in gold prices during the month. Bacterin was up 10.5%in January. The company recently announced preliminary results for Q4:13 which point to a return to growth. Cover-All Technologies was up 9.3%. Shares continued to maintain an uptrend that has been in place since early fall. Nova Measuring Instruments was also up 9.3% in January. The company announced $20mn of new business awards. PhotoMedex was up 7.4% for the month, continuing a rebound from December 2013 lows.

Our worst performers in January are from a variety of industries and included two of our SELL-rated companies. Despite the adverse moves in the near term, we believe our theses are sound on all of them, offering significant alpha from here. SELL-rated Pandora was up 35.6%in January. While there were no financial updates from the company during the month, positive chatter looks to have served as a catalyst. Solar City was also up 30.3% for a negative return on our SELL rating. The stock is very volatile and continues to have significant short interest, lending the shares to large up and down moves in the short term. University General Health System was down 23.0% in January. With no news from the company we attribute the slide to the overall negative month for the broader markets along with the company’s continued delay in filing financials. VOXX was down 20.0%. The company reported Q3:14 results in the first half of the month which included reduced top-line guidance, although EBITDA guidance was increased. LSB Industries was down 19.2% in January. The company reported that it will be taking down an anhydrous ammonia plant due to safety concerns.

As we move into the 2014, we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we have been investigating, and we plan to launch coverage on several names in the coming weeks. With the Fed tapering in 2014 and concerns about growth in China, we anticipate 2014 to be a stock pickers market. We thank our clients for your support of independent equity research.